Public Relations Learned the Hard Way

By

Suzanne Vranica

Updated Dec. 29, 2010 12:01 a.m. ET

Amid harsher government scrutiny and lingering public mistrust of business, 2010 saw more than its fair share of corporate crises.

Some of the biggest stemmed from unexpected events, such as
Toyota Motor
Corp.'s
safety problems and
BP
PLC's oil spill. But crisis-management experts say some companies compounded their woes by botching the initial public-relations response.

ENLARGE

John Ritter

With legislators quick to call executives to account and a recession-battered public wary of big business, the result was a year full of corporate crises.

"In 2010, some of the most valued companies in the world had problems," says
Andrew Gilman,
president and chief executive of CommCore Consulting.

In some cases, increased government scrutiny added to the pressure on corporations and their top executives. Crisis advisors say executives increasingly need to be more mindful not just of their companies' image with consumers, but also with government officials. Indeed, the year saw top brass at BP and Toyota hauled before legislators to answer questions.

"We are in the midst of a highly regulatory regime in Washington and government is being more aggressive in policing companies," says
Chris Gidez,
U.S. director of risk management and crisis communication at
WPP
PLC's Hill & Knowlton.

Here's a look at how companies handled some of the year's corporate crises:

BP PLC

Case: BP's image suffered after the Deepwater Horizon disaster, which saw torrents of oil spew into the Gulf of Mexico.

Experts say: As part of its crisis plan, BP aired an ad that featured a personal pitch and apology from its then-CEO, Mr. Hayward. In the commercial, Mr. Hayward promised taxpayers they wouldn't be footing the clean-up bill.

But Mr. Hayward's other gaffes—most notably saying he wanted his "life back"—undermined his credibility with the public, PR experts say.

Although many PR professionals believe that in some cases a chief executive should be a company's primary spokesperson during a major crisis, in other cases the CEO may not be the right fit. "The CEO needs to be visible at the outset but can designate the person in the U.S. to be the face of the crisis." says
Harlan Loeb,
director of U.S. crisis and issue management at Edelman.

Davis Weinstock,
Chairman of Clark & Weinstock, a reputation-management firm, says Mr. Hayward "was not the right face" for the crisis.

A study by Interbrand, a branding firm owned by
Omnicom Group
Inc.
that tracks and publishes the top 100 global brands every year, found that the BP brand fell off its top-100 global brand list this year. The oil company had been on the list for nine years, and ranked as the 83rd most valuable brand last year.

Coda: Experts say subsequent ads featuring BP employees from the Gulf region seemed to resonate better. However, the brand is still in need of repair, say public relations experts, and the company must develop a new corporate campaign to replace its "Beyond Petroleum" pitch, PR experts add. "BP presented itself as beyond petroleum, which implied we are a better oil company than others and the spill said maybe they are not," said Mr. Gidez at Hill & Knowlton.

"Our philosophy right from the moment the tragedy happened was to 'do the right thing' for those affected; we knew that the chief exec should be in charge and be seen to be in charge. As the crisis developed so did the tools we used for messaging," said a statement from a BP spokesman.

ENLARGE

Despite reports that the antenna design on the iPhone 4 caused reception problems, sales have been brisk.
Bloomberg News

Apple Inc.

Case: In "Antennagate,"
Apple
Inc.
was besieged by criticism that the antenna design on the iPhone 4 caused reception problems. The brouhaha reached a crescendo when Consumer Reports said it couldn't recommend buying the phone and that its tests showed a hardware defect caused the phone to lose reception when held a certain way.

The magazine's analysis ran counter to Apple's claims that the problem was rooted in software that could be easily fixed.

Experts say: "Always listen to your customer—and if they are telling you something, say 'thank you' and offer to remediate the problem immediately," says
James S. O'Rourke,
a professor of management at the University of Notre Dame. "Apple tried to minimize the problem, which is always a mistake."

Coda: Eventually, Apple offered a free "bumper" case to iPhone 4 customers. Despite the dent to Apple's reputation, iPhone 4 sales have been brisk. Earlier this year, the company said it has not seen any decline in demand for the phone because of the antenna problems.

A spokeswoman for Apple declined to comment.

Toyota Motor Corp.

Case: Toyota was forced to recall over eight million vehicles because of several problems including sticky gas pedals that caused automobiles to suddenly accelerate, challenging Toyota's reputation for quality. The car maker had to pay a $16.4 million fine in the U.S. for its failure to quickly disclose potential safety defects and more recently, the Obama administration slapped the company with $32.4 million in civil penalties for failing to properly disclose what it knew about safety defects.

Interbrand found that Toyota's brand value fell 16% this year because of the recall. The car maker had been the eighth largest brand in the world in 2009 but slipped to No. 11 this year. Interbrand's metric takes into account the company's financial condition, third party consumer polling data and its specialists' opinions.

Coda: Although its market share has fallen, experts say Toyota is repairing its image with the help of ads that talk about its Star Safety System and showing that they are changing some processes, such as assigning many engineers to investigate quality problems and extending time devoted to testing new models.

"While it looked to the outside world that we weren't moving fast enough, our engineers were working hard to find the root cause, an effective remedy to perform on millions of vehicles and reviewing it with government regulators," says Mike Michels, a spokesman for Toyota. "The engineering solution for a recall very often lags behind the point of which the announcement is made that there will be a recall. That is particularly challenging from a PR standpoint."

Toyota says it's seen "encouraging signs" that its customer loyalty has remained intact based on data that show that customers affected by the recall are more satisfied than regular Toyota customers and that it is seeing the number of competitor trade-ins "return to historic levels."

Hewlett-Packard Co.

Case: In August, H-P announced CEO Mark Hurd was stepping down. The board cited business-conduct violations related to a relationship with a former contractor.

Experts say: "There was paucity of information from H-P," says
Irv Schenkler,
clinical associate professor of management communication at New York University's Stern School of Business.

The company, he says, gave a legalistic statement of what they were doing and found, but left too many "gaps," which opened them up to criticism about their decision, including some blasts from
Oracle
Corp.
CEO
Larry Ellison,
who later hired Mr. Hurd as co-president.

Coda: H-P's board won both criticism and praise, with some management experts saying directors were right to oust Mr. Hurd if they felt he had demonstrated ethical lapses. In December, The Wall Street Journal reported that federal regulators were investigating Mr. Hurd's departure, including a claim that the former chief shared inside information, according to people familiar with the matter.

"H-P is focused on the future," said an H-P spokeswoman.

ENLARGE

Facebook founder and CEO Mark Zuckerberg
Getty Images

Facebook Inc.

The case: Facebook came under fire on Capitol Hill earlier this year after it rolled out new features that might make users' data more public and a series of changes to its privacy settings that could lead users to expose more information about themselves. The outcry prompted the company to switch to simplified privacy controls in June.

Then in October, the Journal reported that many of the most popular applications on the social-networking site were sending user ID numbers to advertising and tracking companies, violating Facebook's rules.

Facebook later said a data broker had been paying app developers for information about its users, and that it had placed some developers on a six-month suspension from its site because of the practice. It also told lawmakers it had taken steps to prevent the sharing of personal information about users.

Experts say:
Michael Robinson,
a senior vice president of Levick Strategic Communications, a crisis communications firm based in Washington, D.C., says he would like to see Facebook portray itself as a stronger leader on privacy issues. Users' enthusiasm for Facebook has largely shielded the brand from damage so far, but he says that goodwill may erode as Facebook grows up. "People very quickly tire of managing by whack-a-mole and will want to understand what is happening to their information," he says.

Coda: Experts note that Facebook has grown tremendously despite the privacy dings; the site has continued to grow and now has over 500 million active users. They also applaud Mr. Zuckerberg's higher public profile, including a December "60 Minutes" interview where he discussed privacy among other matters.

A Facebook spokesman disagreed with the notion that the company has been reactive on privacy, saying that its Places location product, for instance, had been developed in consultation with "the privacy and safety community."

He continued: "We feel a tremendous responsibility to the many people who trust their information to Facebook. In fulfilling that responsibility, we developed many new ways for people to control and share their information in 2010. We're proud of these innovations but also recognize that we can always do better and more. We will continue to listen to the people who use Facebook to ensure that we do."

Johnson & Johnson

Case:
Johnson & Johnson
faced a series of serious manufacturing problems that led the company to have more than a half-dozen recalls this year for its over-the-counter medicines, some contact lenses and certain hip-replacement parts. One of the most high profile involved a massive recall of children's Tylenol, one of its flagship brands, and other popular over the counter medicines. (No fatalities occurred.)

Experts say: PR experts say that J&J's Chief Executive Officer
William Weldon
should have taken a more active role in the recall crisis earlier in the process, rather than letting a lieutenant take a front-line role.

"J&J did not fully centralize all crisis communication and left much of the recall and the public explanation in the hands of its business units and Colleen Goggins," the executive that oversaw J&J's consumer business, says Mr. O'Rourke, a professor at Notre Dame. Mr. Weldon "not showing up to one of the hearings and his lack of visibility early in the process hurt them," he added.

Mr. Weldon was invited to testify at that congressional hearing, but didn't attend because he was recovering from back surgery.

Coda: PR consultants say despite the problem consumers are still confident in the brand; experts say much of the goodwill stems from how the company handled a famous 1982 tampering incident, which is widely regarded as one of the best examples of how to handle a PR crisis.

In August, Mr. Weldon publicly apologized, and in October testified before Congress. J&J announced in September that Ms. Goggins will retire next year. A spokesman for J&J declined to comment.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.